Historically taxpayers have taken the position that the remaining basis could be written off upon abandonment or disposition. As a further whipsaw to taxpayers, capitalized R&E must continue to be amortized over the remaining five or 15 year life even if a research project is abandoned, disposed of, or retired. The straight-line recovery periods are five years and 15 years for domestic and foreign incurred R&E, respectively, and the midpoint of the tax year is utilized as the convention for the first year of amortization. 31, 2021, taxpayers must capitalize and amortize all R&E expenditures paid or incurred in connection with their trade or business. However, under the TCJA, taxpayers will have far fewer options and far less flexibility in treating these expenditures.įor tax years beginning after Dec. Currently, two options are available for taxpayers – direct expensing of R&E expenditures when paid or incurred, or capitalization and amortization over no less than 60 months from when the taxpayer first begins to derive benefit from the R&E. 31, 2021, taxpayers still have an option of how to treat R&E expenditures under section 174 on their tax returns. The TJCA resulted in significant changes to for the treatment of Research and Experimentation (R&E) expenditures.
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